Implementation of the OECD minimum tax rate in Switzerland

Brief summary

OECD minimum taxation is to be implemented in Switzerland by means of a constitutional amendment. This will be put to a popular vote on the 18th of June 2023. If approved, the Federal Council can implement this minimum taxation with an ordinance. Switzerland will thereby create stable framework conditions and secure tax receipts in the country. The Federal Council will have to submit a federal law to Parliament after six years.


Background

The current taxation of large, internationally active corporate groups is no longer appropriate in the view of the Organisation for Economic Co-operation and Development (OECD) and the Group of Twenty major developed and emerging economies (G20). They wish to introduce special taxation rules for large, internationally active corporate groups as a result of increasing globalisation.

Around 140 countries, including Switzerland, have acknowledged that large, internationally active corporate groups should pay at least 15% tax on their profits. The rate is lower than this in some cases in Switzerland.

Constitutional amendment

The Federal Council and Parliament therefore wish to introduce minimum taxation for large, internationally active corporate groups. There will be no change for all other companies. Consequently, a basis that explicitly permits this unequal treatment needs to be created in the Federal Constitution.

In a transitional provision, the Federal Constitution provides the Federal Council with guidelines on how it should implement minimum taxation. The ordinance should apply until it is superseded by a federal law. The Federal Council must present this federal law after six years at the latest.

Those concerned

Only large, internationally active corporate groups with annual turnover of at least 750 million Euro are subject to the new minimum taxation. In Switzerland, this concerns a few hundred domestic corporate groups and a few thousand foreign corporate groups. As a result, approximately 99% of companies in Switzerland are not directly affected by the reform and will continue to be taxed as before.

Taxation may turn out to be lower than 15% in all cantons. However, it primarily occurs in cantons with a low tax burden, where many large and profitable companies are based.

Supplementary tax in the ordinance

If the minimum tax rate is not reached, the shortfall will be levied by means of a supplementary tax. Otherwise, other states could collect the shortfall instead of Switzerland. The supplementary tax is a federal tax. As with the current direct federal tax, however, it will be implemented by the cantons.

Impact

The financial impact of this minimum taxation is unclear, as it depends to a great extent on the legislation in other countries and on how companies behave. Moreover, it is not possible to estimate all elements of the reform. Annual receipts from the supplementary tax are estimated to be approximately CHF 1 to 2.5 billion initially 1.

Minimum taxation will make Switzerland less appealing from a tax perspective. This could cause companies to move away or decide not to establish a base in Switzerland in the first place, which could result in lower receipts from corporate taxes and other levies.

Tax competition within Switzerland will also be slightly restricted. High-tax cantons will become more attractive relative to low-tax cantons. The administrative burden for companies and authorities will likewise increase.

1 Another financial impact study faces similar methodological challenges. However, the estimated financial impact is within the range mentioned, see: BSS, Volkswirtschaftliche Beratung, Schlussbericht, OECD-Mindeststeuer, Unternehmensbesteuerung in der Schweiz unter dem Regime der OECD-Mindeststeuer: Schätzung der Mehreinnahmen, Verteilung zwischen den Kantonen, Basel 22.07.2022.

Distribution of the receipts from the supplementary tax

75% of the receipts from the supplementary tax will go to those cantons where large companies were previously taxed at a lower rate, meaning that the receipts can be used in a targeted manner where the tax increase leads to a loss in locational appeal. However, some of the receipts will flow into the fiscal equalization system and thus benefit all other cantons as well. The cantons will make sovereign decisions on the use of their receipts, but must take appropriate account of the communes.

The Confederation will be entitled to 25% of the receipts. Some of these will likewise flow into the national fiscal equalization system, while the remainder will be used by the federal government to promote locational appeal throughout Switzerland.

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Last modification 24.05.2023

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